The In’s & Out’s of Selling a Pest Control Company
The best time to prepare your Pest Control company for sale is about 6-12 months prior.
Pest control companies are one of the most sought-after businesses that buyers are looking to invest in. With high profits and growth predictions, it no surprise that more people are looking to buy into this industry that start a pest control business of their own. Due to licensing requirements, the pest control industry is experiencing high M&A activity and putting sellers in a very advantageous position. There’s exponentially more buyers than there are sellers, creating a demand for business owners who are looking to plan their exit.
Pest control companies make up a global $12 billion dollar industry with around 26,000 establishments in the United States. Pest control companies generally employ 5 people on average and see profits of around 7%, with successful firms reporting numbers as high as 20%. Businesses in this industry are difficult to start without prior knowledge and the cutthroat competition does not allow for many errors. Experts are forecasting high growth for the industry with an expected 26% increase in pest control professionals within the next 5 years and an overall 6% increase for the industry. If you have been thinking about selling your pest control company, the first step is a valuation. While only a professional business broker can tell you the true value of your business these formulas can give you an idea of what goes in to calculating the final sales price.
- 80-90% of annual sales includes inventory
- 3-4x SDE + inventory
- 4-5x EBIT & EBITDA
Now that you have a clearer vision of what factors are important in determining the value of a pest control business, you can begin taking steps to increase the value of your company. At Viking Mergers & Acquisitions, we have helped hundreds of business owners in the Southeast increase the value of their business prior to selling and while we would need to actually review your financials to give you concrete advice, we hope these tips can help you take some simpler steps now.
Recurring service contracts are one of the most important factors in determining the value of a pest control company and one of the most attractive factors to buyers. Service contracts create repeat customers and recurring revenues which helps keep a well-balanced cash flow and shows buyers that your business is stable and a low-risk investment. Pest control companies with service contracts can often reel in higher multiples on the EBITA side, sometimes as high as 5 or 6. Buyers also feel more confident and satisfied in the sale – basically, they are paying once for a repetitive income. While recurring revenues are critical, retention rates and customer concentrations play into this tip as well. Being able to show buyers retention rates and customer concentrations only further proves the stability of your business.
Pest management is an industry where your credibility and reputation are critical to your success. Consumers will use the internet to source a reliable pest control company and rumors of returning pests or deadly chemicals will be seen. In this situation, the best defense is a good offense, which means developing a positive web presence and maintaining it. 85% of consumers use the web to find local service businesses so you will want to get your company in as many search results as possible. To do this, you will need a robust website with calls to action, blogs service descriptions and contact information. Social media also creates a web presence that allows for more personalized engagement between companies and consumers and finally, you will need to claim and maintain a presence on all review sites, such as Yelp or Angie’s List. Once you have taken these steps, you can begin to ask clients to review you on these sites and even offer incentives for those that do. Developing an online presence will help with your Search Engine Optimization and brand recognition, which will ultimately lead to more sales.
To an outsider, pest control may just seem like an all-inclusive industry but it reality, there are a plethora of niche service offerings that businesses can use to bring in additional revenues. If your company specializes in a few different offerings, you may want to consider adding one or two more to increase your cash flow and customer base. After decades of rare activity, bedbug infestation are on the rise due to travel to and from Europe by unknowing travelers. Bedbug removal is costly for consumers but could provide business owners with a significant amount of additional revenue. Mosquitos are also becoming an increasingly high concern to consumers due to deadly diseases such as West Nile Virus. Consumers generally employ a ‘rather be safe than sorry’ approach to dangers such as West Nile, and offering a protective service could not only build your reputation in the community but also lock in some recurring revenues.
Service businesses need to demonstrate an evenly-balanced cash flow, which can be difficult in this industry due to seasonality. Summer tend to be the busiest time of the year with winter being the slower season, which can create a bit of a dip in your cash flow. One way to improve this (and build up more recurring revenue) is to offer preventative treatments. Most customers do not want to wait until a full-on infestation to take action and offering preventative packages can build your reputation as a trustworthy company and keep you on their mind in case other pest needs arise. Preventative treatments are often done in quarterly or bi-annual increments, which can help balance your seasonality and lock in recurring revenue sources year round.
If you are thinking about selling your pest management company, the times have never been better. M&A activity in your industry is thriving and the buyer demand is unusually high. While licensing does limit the type of buyer that can purchase a pest control business, strategic buyers are actively looking to expand into the Southeast, creating a Seller’s Market. If you are interested in exploring exit options, the first step is getting a valuation. Valuations are one of the most important tools a business owner can equip themselves with and at Viking Mergers & Acquisitions, we offer valuations at no-cost, no-obligation. Give yourself that extra edge; call us today and find out how you maximize the value of your pest control business and make this the year you take the next step.